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News Article

The Impact of NAFTA on the Mexican Automotive Industry

Thu, 09/24/2015 - 13:35

Taking the stage next was Cate Luzio, Executive Vice President and Head of Global International Subsidiary Banking Client Coverage, HSBC Bank USA, N.A. who endearingly began her presentation with an anecdote about her second day working with HSBC, during which her boss stated her primary focus was to promote the NAFTA region. Despite initially being unconvinced of its importance, Luzio says that she was proven wrong, having witnessed the phenomenal amount of exports leaving Mexico, especially to the US market. Of every five cars exported per minute, four are sent to the NAFTA region. Luzio expands on the importance of open borders and trade agreements, because in order to assemble a single car, auto parts must cross the border eight times. This has contributed to foreign direct investment into Mexico growing to US$60 billion to date.

It takes five days to move auto parts from Mexico to New York, whereas transport from China takes 32 days, such that delays in the supply chain can be greatly reduced if providers are based in Mexico. Furthermore, by relocating to this part of the NAFTA region, suppliers could reduce manufacturing costs by 5-25%. To help US and Canadian clients take advantage of this competitive advantage, HSBC has the largest foreign bank presence across Mexico and helps clients with more than just their banking needs, but providing creative solutions to help companies expand their business.

Over the last few years the local industry has regained status, according to BCG and to HSBC, as the high quality, low cost manufacturing location, because as wages rise in other emerging economies they remain stable in Mexico. Luzio closed her speech explaining that HSBC expects the exchange rate of the Mexican Peso to the US Dollar to remain fairly stable, and continue to help clients to understand currency issues and encourage investment.